Ladies and gentlemen, thank you for standing by, and welcome to the Martin Midstream Partners LP Third Quarter 2019 Earnings Conference Call and Webcast. . I would now like to hand the conference over to your speaker today, Sharon Taylor, Director of Finance and Investor Relations. Please go ahead..

Thank you, Sarah. Good morning, everyone, and welcome to the Martin Midstream Partners conference call to discuss third quarter 2019 results. In the room is Ruben Martin, President and Chief Executive Officer; Bob Bondurant, Chief Financial Officer; Danny Cavin, Director of FP&A and David Cannon, Director of Financial Reporting.

Before we get started, I'll remind you that management may be making forward-looking statements as defined by the SEC. Such statements are based on our current judgments regarding the factors that could impact the future performance of Martin, that actual outcomes could be materially different.

You should review the risk factors and other information discussed in our filings with the SEC and form your own opinions about Martin's future performance. .

Thanks, Sharon. I would like to discuss our third quarter performance, which is our seasonally weakest quarter in relation to EBITDA performance. For the third quarter, we had adjusted EBITDA of $22 million compared to adjusted guidance of $25.2 million.

During the quarter, relative to guidance, we experienced strength in our Terminalling and Natural Gas Liquids segments offset by weakness in our Transportation and Sulfur Services segment. Our Terminalling and Storage segment exceeded forecast for the third quarter by $1.3 million.

In this segment, our packaged lubricant and grease business exceeded forecast by $0.6 million as a result of both sales volumes and margins exceeding forecast as we have been expanding our customer base.

Also, our Terminalling operations exceeded forecast primarily at our lubricant refinery, which was $0.7 million of our forecast a result of reduced operating expenses. Looking toward the fourth quarter.

Guidance remains the same, however, fourth quarter EBITDA is anticipated to be lower than third quarter as there will be most likely be reduced sales volumes due to seasonality in the packaged lubricant and grease business as demand for these products slows during this quarter primarily during the time between Thanksgiving and the new year.

Our natural gas liquids business exceeded forecast by $1.3 million as butane sales were above expectations primarily due to an unanticipated increase in butane demand from our customers in September. Looking toward the fourth quarter in our butane business, we had decreased our guidance primarily driven by anticipated pricing in the fourth quarter.

Although we anticipate strong demand from our refinery customers, the expected amount of increase in butane pricing should not be as significant as originally forecasted due to the continued oversupply of NGLs in the Mont Belvieu market. We do have a significant portion of our inventory hedged at pricing above our inventory carrying costs.

So we believe our earnings in this business will be significantly greater than what we experienced in the fourth quarter of 2018. Our Sulfur Services business missed guidance by $3.8 million, of which $2.7 million was in our fertilizer business and the balance was in our pure sulfur side of the business.

Our fertilizer business missed forecast due to U.S. farmers late fall field preparations. This was a result of the delay in this year's crop harvest, which was due to late crop planning as a result of the heavy rains this spring and early summer.

The impact of this chain of events has resulted in reduced third quarter sales until farmers begin there fall field preparation activity sometimes in the fourth quarter. .

Thanks, Bob. On September 30, 2019, the partnership's balance sheet reflected long-term funded debt of $609 million plus short-term debt related to finance lease obligations of $6 million for a total of $615 million of debt.

Our balance sheet long-term funded debt is shown net of unamortized debt issuance costs and unamortized issuance premium as actual funded debt outstanding was $621 million. Of that, we had $238 million outstanding under our $400 million revolving credit facility resulting in total available liquidity of $162 million.

Our bank compliant leverage ratios, defined as senior secured indebtedness to adjusted EBITDA and total indebtedness to adjusted EBITDA, were 1.80x and 5.10x, respectively, which is a slight decrease in our total leverage ratio from 5.12x on June 30.

As a reminder, our total debt ratio is shown with adjustments from the working capital carve-out sublimit defined in our credit agreement. This provision excludes certain debt directly attributed to our seasonal NGL inventory build from our total debt-to-EBITDA calculation. If the volumes are forward sold or hedged.

At September 30, the calculated debt related to our inventory build was $42.8 million, which, accordingly, was excluded from total debt when calculating our debt-to-EBITDA ratio. Finally, our bank compliant interest coverage ratio as defined by adjusted EBITDA to consolidated interest expense was 2.75x.

Meaning, on September 30, the partnership was in full compliance with all covenants. On August 12, we announced the sale of East Texas pipeline. The 200-mile NGL pipeline running from Kilgore Texas to Belmont Texas. Proceeds of $17.5 million from this sale were used to reduce borrowing under our revolving credit facility.

The pipeline was sold as part of our announced strategic initiatives to divest the noncore assets, to delever the balance sheet and position the partnership for growth opportunity. Moving to our revised 2019 guidance, which was attached to the press release yesterday and can be found on our website at mmlp.com.

Full year 2019 adjusted EBITDA has been reduced to approximately $13.1 million to $115.7 million, which includes actual results for Q1 through Q3 of '19 and our revised fourth quarter outlook. Revisions to the fourth quarter include lowering guidance related to our NGL and Transportation segment.

In our NGL segment, we believe higher butane inventories will result in a lower seasonal uplift in pricing. However, as Bob said, we do have a significant portion of our inventory hedged and expect positive cash flow of approximately $8.3 million in the fourth quarter related to our butane optimization business. .

. Our first question comes from the line of Kyle May with Capital One..

I was wondering if we could start with the trucking business. When you acquired this asset, this business, Martin provided some guidance out through 2022.

Just wondering, if you can give us any preliminary update or kind of how you're thinking about the business now that you've been operating for a few quarters?.

Well, when we bought that business, our anticipation was we would have approximately $23.6 million of EBITDA this year. We're roughly going to be a little bit above $20 million kind of somewhere in the low to mid-20s. The really the difference fundamentally has been the numerous turnarounds both at first part of the year and back half of the year.

And our sulfur load count has been significantly lower period-over-period. We anticipate that to improve. We don't have any fundamental knowledge if this could be IMO 2020 related, all these extra turnarounds, but it might be. Anyway, the pathway next year seems to be that sulfur production will be more normal.

So the growth in CapEx, we're going to continue to reduce lease expenses, we'd buy out these leases. And that's been classified as low dollar growth CapEx. So we do see a runway of continued improvement in cash flows. We may not hit the '21 and '22 targets, but we will be near them.

Fundamentally, probably the swing item in sulfur production comes on back to normal would be the chemical hauling. And that's really as much as anything economic-driven. So instead if the country would've to go into recession, that might be sulfur, however, if it strengthens it would be better.

So we still feel generally good about the trend of our growth in cash flow. It just may not be quite as much in those out years as originally forecasted..

Got it. That's very helpful. And then switching over. So the butane and fertilizer businesses have struggled this year.

Just kind of curious if you have any preliminary thoughts on whether or not these will turn around next year? Or just kind of early expectations on how these could come together?.

Well, as I mentioned this, this harvest -- it's number one, it's late. Number two, the corn production is going to be, we believe, way under what was originally expected. So that will probably most likely drive increased crop prices, which means farmers will want to plant because values will be up. And so you had 2 things with all these flooding.

You're going to have that demand we think increased most likely acreage -- number of acreage planted in corn. And number two, with all this flooding, fundamental plants nutrients were washed away. So in addition to planting for crops, they got to supplement their lost nutrients. So we believe that demand's going to be strong next year.

Now the offset of that is there could be larger inventories that weren't consumed this year and they -- that may keep prices from moving too far north. .

. Our next question comes from the line of Selman Akyol with Stifel..

Just starting off, I guess, on the balance sheet.

Did you guys get any waivers this quarter? Or do you anticipate having to get any waivers next quarter given the lowered outlook?.

No. We did not have to get any waivers this quarter. And we do not anticipate based on our guidance and our forecast in needing those go-forward fourth quarter or into 2020 and beyond..

Okay. And then just back to Transportation.

Can you talk maybe a little bit about sort of utilization of the assets where they were during the quarter? I guess compared to originally where you thought they might be utilized at?.

Are you talking about Trucking or Marine?.

Trucking. Yes. Trucking..

Yes. On trucking. So our average load count for the -- daily load count was about 376 loads a day. Our truck count is about 450-ish. So now we always have a certain percentage of excess supply for truck breakdowns and et cetera. So if you did the raw math, almost, say, about 380 divided by roughly 410 or 420.

That would be a rough picture of our utilization. And that will improve with this sulfur coming online. The sulfur loads are a whole lot of loads that are very short, good revenue per mile and it's a profitable area, but -- and we could -- you could be talking at a 100-plus loads at any one time..

Helpful. You referenced noncore asset sale, competing the one in the quarter.

Are there anymore other assets that you're looking at?.

We have a few minor opportunities that are still being considered, small noncore assets. There's nothing that's going to move the needle as far as leverage..

Got you. And then just lastly, on butane, just trying to kind of understand. And I get pricing hasn't recovered to the point that you originally anticipated.

But can you maybe just talk about how much sales -- or what is your assumptions for your guidance going into the fourth quarter? Maybe either in terms of spreads or number of barrels you expect to move in the quarter?.

I'll say is that the barrels that you -- we go in, it's not dependent a lot on the pricing up/down or whatever. It's basically based upon purchases that we make. In the summer time, a lot of those purchases are hedged. And then it starts moving back out in October. It really kicks in really big in November. And you start moving it.

So we will -- you've basically or totally moved all of your inventory by about March of next year. And so you move through that inventory. And it's pretty much the same every year because based upon gasoline production and vapor pressure allowables in all of the refineries. So it's very consistent.

It's really restricted by the total amount that our system can handle. When it comes to the truck deliveries back through the refineries, truck pickup, storage, all of those kinds of things. But it's pretty consistent and it's not really depended on pricing up or down. It's more about when it's going to move and certain things that happen.

And so right now the volumes are back up, things have kicked in and it seems to be kind of back to business as usual..

And I will say, there's roughly of our inventory carrying into the season. Probably 60% to 65% is sold in Q4. And probably the difference be 35% to 40% in Q1, typically..

This concludes today's question-and-answer session. I would now like to turn the call back over to Bob Bondurant for closing remarks..

Thanks, Sarah, and thanks to everyone who joined the call today as we look forward to stronger performance in our fertilizers, butane and Transportation business. Goodbye..

Thank you..

Thank you..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. .